Getting Technical: “UK businesses are leading the way.”

Statistics just released by HMRC show that that R&D investment by UK businesses is at a record level and that SMEs are accountable for an increasingly large slice of the R&D pie. Is your SME one of them – or could it be in the future?

Britain’s Brilliant Entrepreneurs

The statistics show that last year, British businesses investing in Research and Development (R&D) received £2.9 billion support from government via R&D Tax Credits – and that more SMEs than ever are using them to further their innovation and technological research.

The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, accounting for 73% of all Tax Credit claims.

The Credits can be applied against a wide range of research and development purposes, from advanced engineering to life sciences. Recent examples of qualifying R&D projects include the creation of a new artificial bladder system for patients with urinary difficulties and the development of new IT encryption and security techniques – two very different but vital projects in today’s world.

Mel Stride, Financial Secretary to the Treasury and Paymaster General said:

“From manufacturers to scientists, Britain’s brilliant entrepreneurs are leading the way in technology and innovation.

“We will continue to support these businesses so that they can promote growth across the country and compete in the global economy.”

About R&D Tax Credits

R&D Tax Credits “support UK businesses to make the investment they need to innovate so that Britain remains at the cutting edge of technological development,” says HMRC. It’s estimated that for every £1 of government support businesses receive, businesses invest up to £2.35 in the UK economy through R&D.

So how do they work?

R&D Tax Credits allow companies to claim an enhanced corporation tax deduction or payable credit on their research and development costs. There are two schemes for claiming R&D Tax Credits: The Research & Development Expenditure Credits (RDEC) and the Small or Medium-sized Enterprise (SME) scheme, which you can read more about at the end of this article.

Including their normal tax deduction, R&D Tax Credits effectively reduce the cost of R&D by 28% for a large company and up to 44% for an SME.

SMEs Riding the Wave

R&D investment by UK businesses is at a record level and HMRC says this demonstrates the positive effect of government support. Qualifying science and technology research by UK businesses was almost £23 billion in 2015-16, up from £22.1 billion in 2014-2015 and adding a sixth successive year of increased qualifying spending.

HMRC also says that it’s government support that’s enabling SMEs to remain competitive in these fields. Certainly, there’s been a pronounced rise in the number of SMEs claiming R&D Tax Credits. Claims by SMEs were up by 22% to 21,865, and most of the increase in R&D Tax Credits claimed was due to first-time SME applicants.

The SME scheme is available to companies with fewer than 500 employees and an annual turnover under €100m or a balance sheet under €86m. It offers more generous relief than the RDEC, recognising that small companies can find it more difficult to undertake and finance R&D.

If you are a small business owner interested in claiming R&D Tax Credits or finding out about other government schemes to fund and support innovation, everything you need to know can be found on the government’s page, Schemes to help your business innovate and grow.

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